Benjie Goodhart interviewed Krishnan Guru-Murthy about what lies beneath the modern perception of India - the reality behind the glossy story of India becoming a superpower.

Krishnan Guru-Murthy India interview

The story of the Indian economy is a real rags-to-riches story, isn't it?
Oh, it's a shocking transformation. The last time I went to India to spend time was five years ago, and the transformation between the India of 2002 and the India of 2007 is absolutely gob smacking. The cities have been totally transformed. Huge areas of land are being taken over by industrial parks, shopping malls everywhere. Huge, American-style malls are springing up literally next to each other. There's a road in Gurgaon, just outside Delhi, where you've literally got about six shopping malls right next to each other. They're full of people with money to spend, and all the western labels are there. It is shocking how much disposable income the new middle class has.

Where has the explosion in middle class wealth come from?
It's come about because the Indian boom has been very middle-class-knowledge-driven. We all know about call centres, but there's a huge amount of information technology, a lot of computer support stuff, a lot of software, and financial services and service industries growing up in India. That's put a huge amount of money in the hands of the middle classes. The time was in India when everyone wanted to be a professional - they wanted to be doctors, lawyers and accountants. Nobody wants to do that now, they all want to go into business, into the new technologies, because that's where the money is.

What are the reasons behind this boom in Indian business? Why has it happened so suddenly?
That's happened because over the last 15 years, successive governments have liberalised the very restrictive rules that used to limit foreign investment and foreign ownership of Indian business. And as that has liberalised, India's marked has opened up for investment, and a lot of things have grown. And it becomes a self-perpetuating thing. Once you've created a middle class group who have lots of money to spend, because they're being paid by big, successful businesses, they want to buy things. So there's huge demand for retail goods and services and air conditioning units and better buildings and new houses and so on. So the economy is mushrooming in that way. And it's driven by knowledge. That's what makes it different to the other Asian success stories, which have largely been about manufacturing and cheap labour. The new India is basically a middle class urban phenomenon, and what we've been looking at is what that means for the rest of India.

Does the new prosperity of the middle class put the poverty in India into even greater relief?
It's not so much the middle class as the super rich who really bring home to you the poverty of the poor in India. As well as the middle class explosion, there's been a creation of a new class of super-rich Indians. There are huge numbers of millionaires and billionaires in India now. We met a guy who had an ordinary upbringing, and turned a $10,000 investment ten years ago into a $2.5 billion business. So what you get in India is these extremes of wealth, and I think that's puts the poverty and the deprivation and the discrimination into much sharper relief.

Do you get the impression that the rich and the middle classes are distressed by the plight of the poor in India, or is it such an engrained part of life there that it no longer registers?
My own view is that Indians are very good at walking on by extreme poverty, not letting it trouble them too much. Partly because that's always been the way. If you spend your entire life worrying about the beggar or the guy who's living on the street, or the way your servant lives, you'd never get anything done in India. So Indians have a practical approach towards the poverty that they live alongside. But there's also a philosophical aspect that differs from the West. There is no guilt associated with being wealthy in India. In the West, in Judeo-Christian society, whether people are religious or not, there is basically a sense that it is easier for a camel to pass through the eye of a needle than it is for a rich man to enter the kingdom of heaven. There is no such concept in India. Hinduism encourages people to acquire wealth as part of their lives.

Part of the reason behind the inequality in India is due to the continuing prevalence of the caste system. Were you surprised by the hold it still has over many Indians?
I wasn't surprised, no. I think it's very obvious that India has failed to tackle caste despite huge amounts of effort. What successive governments have done in India is outlaw caste discrimination, and also have positive discrimination policies. So they've created quotas and reservations in education and government jobs. A lot of people feel that that actually props up the caste system, because it reinforces the caste. A lot of people would equally argue that you need positive discrimination to tackle something that is so stark and so engrained. But overall, what I felt about the caste system was that even though lots of Indians will say that they are anti-caste, and that the caste system is discriminatory, people's caste identities are still very important. I think that makes solving discrimination next to impossible. If people still hold on to a caste identity, there will inevitably be people who discriminate against them as a result. People hold on to that identity in terms of friends, marriages, professions. Open up the newspaper marriage columns and it's still all divided up according to social classifications. And there's no sense that there's any desire to ban caste.

People aren't just discriminated against because of their caste, are they? The Muslims, for example, are subjected to discrimination. How significant and widespread is the problem?
I can't give you a definitive answer, but my own sense is that discrimination against Muslims is fairly widespread. Even though people know in their hearts that it's morally wrong, there is a huge amount of engrained prejudice against the biggest minority. It manifests itself in all sorts of different ways, from the simple social ways whereby you might have classmates who are Muslims, but the families would never be invited to each other's home, and wouldn't countenance the idea of intermarriage. And then there are more stark things, like the one we investigated in Mumbai's luxury housing market, which is going completely mental, and prices are sky-rocketing. There are developments where Muslims are unable to buy a flat. They'll be fobbed off or told they're all full, or no-one will ring them back. We spoke to one guy who'd tried to buy a flat in a development for four years, and when we went inside posing as potential investors, the security guards would quite openly tell us that they didn't allow Muslims there. I don't think I could say that's typical, but it's certainly going on.

We're talking about a country of a billion people. How soluble are the problems of inequality?
I don't believe anything is insoluble. If, five years ago, you'd suggested to me that India would be the way it is today, I probably wouldn't have believed you. So rapid change can take place. The thing about India, though, as you say, is the scale. You have hundreds of millions of people who are going to have to change the way they live. Between 500 and 700 million people depend on agriculture in India. But agriculture is going to have to go through a massive change, from lots of small farms of two or three acres to more commercially sustainable, bigger farms that will make money. But that's going to mean hundreds of millions of people changing jobs. Whether that can happen very quickly, or whether it will take decades, is difficult to say. The Indian finance minister claims that India can rid itself of poverty within three decades. That is a very confident claim. But I'm not sure that that will answer the questions we're raising, about discrimination, caste, and what will happen to people living in the rural areas.

So what do you see as being the best case scenario for the future of India?
I think the best case scenario for India in the 21st Century would be that it becomes one of the top three economies of the world, that it dramatically changes the lives of hundreds of millions of people in a generation, and becomes an economic superpower that also starts to demand its place on the world's political stage as well. From an Indian perspective, that is the dream.

And what's the worst case scenario?
That not enough of the new economy hit's the whole of the country, and you get hundreds of millions of people in the rural areas who are landless and jobless. I talked to a hugely respected man called Swamimathan, who is described as the Father of the Green Revolution, which changed the way people farmed in the 1960s, and ended famine in India. He warned me that you could have 500 million landless labourers shut out of the new India, with the likelihood of social chaos and possibly revolution. I don't really believe that there's going to be a revolution in India, but there is a real possibility of big problems trying to tackle these fundamental problems, and I think there's a real issue that you could end up with people at the bottom totally excluded. And in a country the size of India, you could be talking about hundreds of millions of people being shut out of the new India. And that can only lead to chaos.